Page 42 - Macroeconomics. book docx_Neat
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16. Understand how the spending approach prepares students for the output approach.
Key Terms
Spending Approach: A method of measuring national income by adding total
expenditure on final goods and services.
Aggregate Spending: Total spending in the economy, represented by C + I + G + (X − M).
Consumption (C): Household spending on goods and services to satisfy needs and wants.
Necessary Consumption: Spending on basic goods such as food and housing.
Luxury Consumption: Spending on non-essential goods and services.
Investment (I): Spending on capital goods used in future production.
Fixed Investment: Spending on long-term capital assets such as machinery and buildings.
Inventory Investment: Changes in stocks of raw materials, work-in-progress, and
finished goods.
Gross Investment: Total investment spending without deducting depreciation.
Net Investment: Gross investment minus depreciation.
Depreciation: The loss in value of capital goods due to wear and tear.
Replacement Investment: Spending to replace worn-out capital goods.
Government Spending (G): Government expenditure on goods and services.
Transfer Payments: Payments such as pensions that are not made in exchange for goods
or services.
Exports (X): Goods and services produced domestically and sold abroad.
Imports (M): Goods and services produced abroad and purchased domestically.
Net Exports: The difference between exports and imports (X − M).
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